Which financial institution can outperform hedge funds, outlast economic downturns, and wield more influence than many sovereign wealth funds?
Not Wall Street banks or private equity giants—but university endowments.
US President Trump’s recent $2.2 billion funding freeze proposal targeting Harvard—the top Ivy League school sitting on $50 billion in endowment assets exceeding the GDP of over 100 countries—has brought these financial powerhouses into the spotlight.
Harvard has filed a lawsuit against the Trump administration, challenging the proposed $2.2 billion funding freeze as unconstitutional, politically motivated, and a direct attack on academic freedom and institutional autonomy.
Harvard’s lawsuit only intensifies the question:
How did educational institutions become some of the world’s most sophisticated financial operators?
The best endowments operate like elite family offices — with access, agility, and the ability to take the kind of long-term bets most can’t. University endowments fund some of the most enduring academic and scientific initiatives of our time — from Nobel-winning research and full scholarships to deep investments in frontier innovation. Their capital decisions often shape entire research ecosystems long before public markets take notice.
Why are these global education powerhouses investing like billion-dollar family offices? What’s the secret to their strategy — and can Indian institutions follow suit?
This week, we dive deep into the world of endowment investing.
In this edition, we will cover –
- The quiet capital machines powering the world’s top universities
- How elite endowments consistently outperform traditional portfolios
- Donor capital, governance, and the influence it unlocks
- Why family offices are moving toward endowment-linked philanthropy
- India’s opportunity to build enduring financial independence in education
Let’s dive in.
So, firstly, what are Endowment Funds?
At their core, endowment funds are large, professionally managed investment portfolios built through donations — typically by colleges, universities, and other nonprofit institutions. These donations aren’t meant to be spent outright. Instead, they form a perpetual capital base, designed to generate returns year after year.
The purpose? To fund long-term institutional priorities — scholarships, faculty salaries, campus infrastructure, cutting-edge research, and more.
What makes them unique is their long-term mandate. Most follow a spending rule — typically distributing around 4% to 5% of the corpus annually — while the rest is reinvested to preserve and grow the fund in perpetuity. That means they can weather short-term volatility, invest with a multi-decade horizon, and back high-conviction, illiquid opportunities.
Who’s really sitting on the money?
Endowments are most commonly associated with elite universities — Harvard, Yale, Stanford, Princeton, and MIT top the list. The top 10 US institutions collectively manage over $320 billion in endowment capital, giving them the ability to fund research, scholarships, and infrastructure without relying heavily on government grants or annual fundraising cycles.
Cumulatively, U.S. higher education endowments total $873.7 billion, but the median sits at just $243 million — with nearly 30% of institutions managing $100 million or less, underscoring the deep concentration of capital at the top.
But it’s not just universities. Think tanks, museums, hospitals, and even religious organisations also operate massive endowment funds. The largest known endowment, for instance, isn’t held by a university — it’s managed by Ensign Peak Advisors, the investment arm of the Church of Jesus Christ of Latter-day Saints, with reported assets exceeding $200 billion as of early 2025.
India, too, is beginning to take endowment funds seriously.
- IM Ahmedabad launched its fund in 2020 with ₹100 crore and has since secured over ₹550 crore in commitments — a solid start, but still far from global scales.
- IIT Delhi runs a formal endowment fund and is targeting a corpus of ₹10,000 crore over the next five years to support research, innovation, and infrastructure.
- Indian School of Business (ISB) has also structured an endowment that funds its long-term strategic initiatives.
While progress is visible, structured, perpetual capital is still rare — with most institutions reliant on grants, fees, and alumni donations.
As for who contributes to these funds? It’s a who’s who of global philanthropy.
Michael Bloomberg has committed over $3.3 billion to Johns Hopkins — the largest private donation to a university in U.S. history. Ray Dalio has pledged more than $1 billion to Yale and UConn, supporting education and mental health initiatives. Blackstone’s Stephen Schwarzman gave $350 million to MIT to build a new college for computing and AI.
Closer home, the Tata Trusts have backed institutions like TISS and IISc for decades, while Nandan Nilekani’s ₹315 crore gift to IIT Bombay reflects a growing shift toward structured, institutional giving.
How do endowments invest?
Yale pioneered an investment model that changed institutional finance forever (A bit more about it later). Princeton’s endowment, with fewer than 10 staff, has consistently outperformed some of the world’s largest asset managers. MIT’s endowment has quietly built deep positions in frontier tech and biotech, often investing years ahead of the curve. Stanford’s portfolio includes timberland, energy infrastructure, and startup equity — blending long-term strategy with Silicon Valley edge.
Built for the long haul, endowments invest with a mindset few others can match. That’s the principle guiding the world’s most successful capital pools. Instead of chasing short-term market moves, they go deep into illiquid alternatives — private equity, venture capital, hedge funds, real assets, even timberland and art. These assets trade off liquidity for return potential — and for institutions with time on their side, that’s a winning bet. Their low correlation to public markets also helps diversify risk and smooth long-term performance.
This playbook was shaped by David Swensen at Yale. His now-famous Yale Model focused on:
- Spread capital across uncorrelated opportunities
- Go deep into illiquid, high-conviction bets
- A disciplined, long-horizon mindset to ride out volatility and unlock compounding
The result?
Over the 20-year period ending June 30, 2024, Yale’s endowment delivered a CAGR of 10.3%.
“Liquidity is a performance drag for investors with long time horizons.” — David Swensen
Endowments know this well. That’s why their best ideas are often the ones you can’t exit quickly. Today, institutions like Princeton, Stanford, and MIT have built endowment funds on this model — preserving its core logic while fine-tuning it for their unique investment goals.
Endowment funds play a game built on flexibility, access to private markets, and the freedom to invest without the pressure of quarterly performance.
Beneath the investment brilliance lies a strong operating engine. Most large endowments are managed by dedicated investment offices — think of them as in-house asset managers. Yale’s investment team, manages a multi-billion-dollar portfolio with less than 30 professionals, yet commands access to some of the world’s top-performing private funds.
These teams handle everything — from asset allocation and manager selection to rebalancing and risk oversight. Some institutions, like Stanford and MIT, even spin out their investment arms as independent entities (Stanford Management Company, MITIMCo) to preserve autonomy and attract top talent.
What happens to these returns?
Nearly all endowments follow a strict spending policy — typically distributing 4–5% of the fund annually. This payout supports scholarships, research, faculty salaries, and campus infrastructure — while the rest of the returns are reinvested to grow the corpus and preserve purchasing power over time.
This discipline is what gives endowments their edge: structured governance, patient capital, and a clear mandate to outlive generations.
Legacy planning through Endowment giving
Endowment giving is fast emerging as the preferred legacy strategy among UHNIs and family offices — blending long-term impact with structural efficiency.
At leading U.S. universities, a $500,000–$1 million gift can fund a named scholarship in perpetuity. $3–$5 million can endow a faculty chair, and $10 million or more can finance a research centre or academic program — all structured to generate sustained, compounding impact via annual payouts.
There’s a financial strategy at play, too.
Donating long-term appreciated securities to an endowment eliminates capital gains tax on the sale and qualifies donors for a charitable deduction based on fair market value. The result: meaningful support for institutions, with tax-efficient wealth transfer across income and estate brackets.
Endowment-linked giving is one of the most underutilised tools in strategic philanthropy.
Why?
Because it blends:
- Tax optimisation (through appreciated securities or estate deductions)
- Capital permanence (via the endowment corpus)
- And brand alignment (your name tied to a cause, permanently)
However, these benefits currently apply to U.S. tax laws and are not available under Indian regulations.
Compare that to a traditional trust structure or Corporate Social Responsibility (CSR) mandate, and the difference is stark.
Increasingly, families are going one step further — they’re bringing the next generation into the process.
Whether it’s sitting in on university impact briefings, helping allocate payouts from a scholarship fund, or simply having a say in what gets supported. It’s hands-on capital with hands-on learning.
Endowment giving often opens doors beyond the donation itself. At most top institutions, major donors are invited to join endowment councils, faculty advisory boards, or capital campaign committees — gaining insight into how the university operates at a strategic level.
Participation at this level sends a strong signal of commitment, alignment, and access.
In boardrooms and philanthropic networks, such involvement is often viewed as a form of institutional leverage and social capital.
Performance metrics and transparency
For families and foundations considering sizable commitments, due diligence goes well beyond mission fit — it includes understanding how the endowment is governed, allocated, and reviewed.
Most leading institutions follow a 4–5% annual distribution rate, designed to fund operations while protecting the core corpus. But beyond this basic framework, performance diverges widely based on the institution’s asset strategy, access to alternative investments, and investment governance
In this backdrop, it becomes imperative to ask the right questions —
- What has been the endowment’s 10 or 20-year average return?
- How does its performance compare to a traditional 60/40 benchmark or an inflation-adjusted hurdle?
- What proportion of returns comes from alternative investments?
- How frequently is performance disclosed, and to what degree of detail?
- Does the institution report on impact — scholarships granted, research enabled, faculty chairs funded?
- Are there independent audits or third-party evaluations of the endowment?
Of course, this list is not exhaustive and is just a starting point for those considering endowment giving.
Donors should also assess whether payout rates are aligned with long-term fundraising and capital preservation goals. An endowment that consistently underperforms benchmarks or draws down too aggressively may warrant closer scrutiny. Some institutions now disclose additional data — including volatility, Sharpe ratios, and ESG metrics — offering a clearer picture of both performance and values alignment.
Strong endowments go beyond reporting returns. They provide a transparent view of how capital is managed and the outcomes it helps deliver.
How can Indian institutions follow suit?
Indian institutions are at an early stage in adopting endowment models. Although notable initiatives exist, structured endowments remain mostly confined to elite or tier-1 institutions, with limited adoption across the broader higher education landscape.
Several challenges persist:
- Cultural norms that favour immediate philanthropy or CSR compliance rather than perpetual capital.
- Regulatory frameworks that offer limited clarity on governance, investment policies, or tax incentives for endowments.
- Institutional inertia, with universities traditionally relying on government grants and tuition revenue.
However, given India’s expanding base of UHNWIs and increasingly globalised alumni, the environment is ripe for structured, professionally managed endowments. Done well, these could transform institutional finances and elevate academic quality.
In summary
Think of an endowment as a multiplier of your legacy—not just safeguarding wealth but actively putting it to work. It’s structured philanthropy that enables institutions to pursue ambitious goals, catalyse innovation, and deliver sustained value across decades.
As Indian institutions begin to explore this potential, the opportunity to marry philanthropy with disciplined capital management is immense. Consider this question:
“What if your legacy wasn’t measured just in wealth—but in the sustained impact it creates?”
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